Karma's gift to Facebook: F-commerce done right, finally

Since writing that Facebook Gifts would likely kill a bunch of startups, I've heard from many of those startups. Naturally, they disagree.

Wrapp, for example, has argued fervently that its gift card-focused service is more appealing to merchants because it doesn't involve the moving of any inventory.

Others, like Aggregift (short for aggregation, not aggressive, I presume), have said Facebook Gifts aren't getting the social part right. "At its core, Facebook Gifts is a 1:1 service. It is not much different than me going to buy someone something from Amazon," founder Austin Lin emailed. Group gifting options from startups like his, GiftSimple and Giftdrop lower the barrier to gift buying, the thinking goes.

Perhaps. There are plenty of small differentiators. At least now the startups know exactly what they're competing against: Last night at FAO Schwarz in New York, Facebook revealed the full extent of its Gifts program, which the company has been working on since it acquired gifting startup Karma in May. It's now open to "tens of millions" of users.

Yes, they let us play the big piano.

Karma founder (now head of Facebook Gifts) Lee Linden explained that part of the reason Facebook acquired Karma over its many, many competitors, is that the company had solved the big logistical problems for vendors. Karma integrates with Magento, GSI and all the major e-commerce platforms to make it simple for vendors to sell on a new third-party platform.

This was the biggest challenge Facebook faced with its failed F-commerce attempts. Many large retailers abandoned storefronts on the site because they were expensive and cumbersome to integrate, not to mention, it only cannibalized their existing e-commerce sites.

Facebook Gifts works pretty seamlessly. It's just as Karma was, if you've used it pre-acquisition. There's a "gift" box on every profile you visit. It's right up top on the box you use to post Wall messages. Click it, and Facebook offers you a list of suggestions based on the occasion and the demographics of the recipient (eventually they may offer recommendations based on a person's Likes). Choose a gift, a card and a message, and the user is alerted of their gift. They claim it, type in their address (they can change the gift to something else if they don't like it), and the sender gets an alert that it's time to pay. A post goes to the giftee's Facebook Wall and the gift is shipped off. And it works just as well on iPad (I haven't seen it in action on a phone yet).

Starbucks is the biggest brand on board, but it's not doing physical gifts -- the gift card is emailed. I imagine many big retailers are taking a wait-and-see approach before diving in head first with this one.

Facebook was quick to remind us that it owns more than just birthdays. It also owns engagement announcements, baby photos, new jobs -- any kind of congratulatory event. They're targeting Zuckerberg-aged users who might have friends with a new baby (thus, Baby Gap partnership), or a wedding, or a new apartment (Fab.com partnership). They're targeting people who actually have money.

As I argued last week, this could be Facebook's big break into commerce, at long last. After turning off retailers already once, it kinda has to be. Still, it's not the company's only commerce trick: Facebook is also doing some interesting things related to commerce and Open Graph integration for e-commerce sites like Fab.com. If you sign in with Facebook on the site, you can see what your friends have bought, liked or shared. This isn't a money-maker for Facebook yet though, so we'll see if more stores go this route.

There is a lot riding on Facebook's ability to get commerce right this holiday season. Facebook, the publicly traded advertising business, needs new revenue streams. If Facebook can make commerce into a viable source of income, it's a whole new kind of company.